Thinking About Transferring Your Home to Your Children?
Jamie called because her dad was in need of Medicaid. He was now in a nursing home and Mom was living at home. They had about $120,000 of countable assets. I asked about the home and Jamie told me her parents had transferred it to her 7 years earlier.
Jamie was confident when she asked me to confirm that the home is protected and would not be subject to New Jersey Medicaid’s spend down requirements. I told her she was correct, but then I asked her whether Mom would remain in the home. That’s when Jamie told me that the plan is to sell the home and have Mom move in with Jamie and her husband.
Jamie told me the house would probably net $200,000. That money plus the $60,000 of countable assets that Mom could keep under Medicaid’s Community Spouse Resource Allowance would be used to support Mom.
I then asked Jamie if she had accounted for capital gains tax in her calculations. Jamie sounded puzzled. “Aren’t Mom and Dad entitled to exclude gain from the sale of their home,” she asked. “It has been their primary residence for 30 years.”
I explained to Jamie that since she is now the owner but does not live there, she cannot use the $250,000 exclusion of gain from the sale of a primary residence. We then quickly estimated the tax she would pay to be $30,000.
Jamie wasn’t thrilled with the discovery that she would have to pay the government $30,000 but still felt OK because the remaining $170,000 would still be protected and available to her mom. And that’s true but I told Jamie that there was a way to avoid the capital gains tax. It’s too late for her to correct her mistake now, but I’ll share with you next week what she should have done.